BP 07 78-Restaurants

BP 07 78–RESTAURANTS

(September 2019)

INTRODUCTION

The Insurance Services Office (ISO) Businessowners Program includes a variety of restaurants as eligible classes of business. Restaurants present unique exposures and require coverages that are not in the unendorsed Businessowners Coverage Form. This endorsement adds a number of coverages, considerations, and definitions that respond to those needs. This analysis examines them relative to BP 00 03–Businessowners Coverage Form.

BP 07 78–RESTAURANTS ANALYSIS

Note: This analysis is of the 07 13 edition of this endorsement. Changes from the 01 10 edition are in bold print.

A. Additional Coverages Added

This section adds six new coverages under Section I–Property A. 5. Additional Coverages.

a. Reward Payment (07 13 change)

(1) Reimbursement

(a) The insurance company reimburses the named insured up to $5,000 for rewards it paid to eligible persons for information that results in the arrest and conviction of anyone who committed a crime that caused loss or damage to covered property from a covered cause of loss. It does not pay more than the lesser of the following:

·         The covered property’s actual cash value at the time of loss up to (but not to exceed) amounts needed to repair or replace it

·         The amount determined by applying the loss settlement procedure in the Loss Payment Condition

(b) The insurance company pays up to $5,000 to eligible persons for return of stolen covered property. It does not pay more than the property's actual cash value based on its condition when returned up to (but not to exceed) the lesser of the following:

·         The amount needed to repair or replace it

·         The amount determined by applying the loss settlement procedure in the Loss Payment Condition

(2) This additional coverage is subject to three specific conditions:

(a) An eligible person is the party that law enforcement authorities consider to be the first person to voluntarily provide information that leads to the arrest and conviction in a case of stolen property being returned. However, the following are not considered eligible persons, even if they are the first ones to supply such information.

·         The named insured, its family members, employees, temporary employees, leased employees, or their family members

·         Employees of a law enforcement agency or a property protection business

·         Anyone with custody of the property when it was stolen

·         Any person involved with the crime

(b) Rewards are not paid until the parties that committed the crime are convicted or the property is returned.

(c) The amount of reimbursement in any one occurrence is the lesser of the reward amount or $5,000.

b. Brands and Labels

Branding a product line is a very important issue for certain customers. This coverage establishes how the insurance company works with the customer after a loss to preserve brand value.

(1) A covered cause of loss may damage covered property that consists of branded or labeled merchandise. In that case, the insurance company may take all or part of it at an appraised or agreed value. If it does, the named insured has two options:

(a) It can stamp the word salvage on the merchandise or its containers as long as doing so does not physically damage the product.

(b) It can remove the labels or brands as long as doing so does not physically damage the merchandise and then re-label it or its containers to comply with laws that apply to such activities.

(2) The insurance company pays reasonable costs the named insured incurs to perform any of these activities. The most paid in a claim is the value of the damaged property plus the cost of the branding and labeling expense or the business personal property limit of insurance, whichever is less.

 

Example: Riley developed a salad dressing that was so popular his customers asked to take it home. He arranged to have it manufactured and sold but only at his restaurant. Three cartons of the dressing were stolen along with other property. Everything was recovered but it was all damaged. The insurance company paid the value and took the salvage. Riley arranged for the word “salvage” to be stamped on every bottle of dressing. This coverage paid the expenses to do the stamping but more importantly Riley was able to make sure that none of his unmarked proprietary salad dressing could be sold except at his restaurant but he still received a full settlement from the insurance company.

 

c. Ordinance or Law–Equipment Coverage

The insurance company pays more than to simply repair or replace equipment that qualifies as covered property damaged by a covered cause of loss.

(1) It pays to repair or replace the qualifying equipment as the law requires.

(2) If a loss involves refrigeration equipment, it pays the additional costs to satisfy the various laws that require reclaiming refrigerant, retrofitting the equipment to use non-CFC refrigerants, and the higher costs to recharge the system with such non-CFC refrigerants.

(3) This coverage applies separately to each item of covered equipment.

(4) Coverage does not apply to any costs that relate to enforcing laws or ordinances that require any response to pollutants, fungi, wet rot, or dry rot.

(5) Loss to equipment is determined as follows:

(a) If damaged equipment at any location is repaired or replaced, the company pays the lesser of the amount actually spent to repair it or the cost to replace it with like kind and quality, up to the limit of insurance.

(b) If damaged equipment is not repaired or replaced, the company pays the lesser of the equipment's actual cash value on the date of loss or the limit on the declarations that applies to Building or Business Personal Property.

(c) The insurance company does not pay the increased costs to comply with any ordinance or law that the named insured should have complied with prior to the loss but did not.

 

Example: L & L Restaurant has a walk-in refrigerated unit over 50 years old that was never replaced because it still worked. A local ordinance requires refrigerated units to use “green” technology but existing units are grandfathered until and unless they must be replaced. When a fire occurs, L & L must replace the unit and this coverage pays for the green upgrade required when the unit is replaced.

 

d. Lock Replacement

This coverage pays the costs incurred to repair or replace locks at the described premises when keys are lost or stolen. The limit of insurance is $5,000 in any one occurrence and is subject to a $100 deductible.

 

Example: Adam, Rusty Nail’s bartender, closed the restaurant one evening and never returned. Keith, the owner, is concerned because Adam took the keys and might use them to enter and steal items after hours. Keith decides to replace all the locks in the restaurant. This coverage responds, up to the $5,000 limit, and subject to the deductible.

 

e. Spoilage Coverage

(1) This coverage pays for loss of perishable stock caused by:

(a) Changes in temperature or humidity but only if the change is due to mechanical breakdown or failure of refrigeration, cooling, or humidity control equipment at an insured location

(b) Contamination by refrigerants

(c) Complete or partial power outage either on or off the premises. However, this is only when conditions beyond the named insured's control cause the outage that causes the change in temperature or humidity.

(2) The most the insurance company pays for loss or damage in any one occurrence is $10,000. Higher limits are available and must be entered on the declarations. The loss must exceed the coverage deductible before any payments are made.

(3) Perishable stock is valued at the price it would have sold for if there were no loss. This value is then reduced by any discounts or expenses the named insured would have incurred if the items had actually been sold.

(4) The exclusions in the coverage form do not apply. Instead, coverage does not apply if the spoilage is due to any of the following:

(a) Earth movement

(b) Governmental action

(c) Nuclear hazard

(d) War and military action

(e) Water

(f) Disconnecting any described system from its power source, such as pulling the plug out of the wall outlet

(g) Deactivating electrical power by manipulating switches or devices that control electrical power or current, such as flipping the "on" switch to "off"

(h) The electrical utility or other power source's inability to provide sufficient power because of lack of fuel or due to a government order

(i) The power source at the covered premises not being able to provide the needed power level because of insufficient generating capacity

(j) Any glass breaking that forms a permanent part of any refrigeration, cooling, or humidity control unit

(5) The insurance company does not pay for loss or damage until the amount of loss exceeds the deductible on the declarations for this coverage. It then pays up to the limit of insurance that applies. This is the only deductible that applies to this Additional Coverage.

(6) The named insured must have a refrigeration maintenance or service agreement and keep it in force. If it does not, and if it does not inform the insurance company within 10 days of its termination, this coverage is suspended at the location involved. Coverage is reinstated only if the agreement is reinstated or another equivalent agreement replaces it.

Note: A refrigeration maintenance agreement is a written service contract between the named insured and the organization that provides the service. It requires that the refrigeration equipment at the involved location be inspected at regular periods and be serviced or repaired as needed. It also includes any required emergency service.

f. Food Contamination (07 13 changes)

(1) The Board of Health or another governmental regulatory authority may close the named insured's business because it either finds or suspects food contamination. In that case, this coverage pays the named insured's:

(a) Expenses to clean its equipment as the governmental authority or Board of Health directs

(b) Expenses incurred to replace food that is contaminated or is suspected to be contaminated

(c) Medical expenses to test or vaccinate employees, temporary employees, and leased employees potentially infected by the food contamination. This applies to only expenses that workers compensation insurance does not cover.

(d) Loss of business income sustained while operations are suspended. The period of restoration does not begin until 24 hours after the named insured receives the governmental authority's order to close.

(e) Additional advertising expenses incurred to restore its reputation

(2) The definition for business income used in this coverage is the same as the definition in Section I–Property 5. Additional Coverages f. Business Income.

(3) The most the insurance company pays for additional advertising expenses to restore the named insured's reputation is $3,000 unless there is a higher limit entered on the declarations. The most paid for the other expenses indicated above is $10,000, including business income. Higher limits are available.

(4) Coverage does not apply to any fines or penalties any governmental authority imposes because it discovers or suspects food contamination at the involved location.

(5) Section I–Property, Exclusions B. 1. j. Virus or Bacteria does not apply to this coverage.

 

Example: Maple Valley’s new health inspector is determined to clean up the town's restaurants. She orders Lilliput’s Tea Room to close when she discovers the temperature in the refrigerator is higher than allowed. She also orders that all refrigerated items be destroyed and any equipment that came into contact with the possibly contaminated food to be thoroughly cleaned. She notifies the newspapers and they make the story front-page news. Lilliput’s owners try to explain the situation by taking out ads, distributing pamphlets, and offering specials. All costs associated with replacing stock and cleaning equipment are covered, up to the $10,000 limit. If Lilliput’s had to shut down more than 24 hours, the business income for that time period is also covered within the $10,000 limit. The advertising costs are covered up to $3,000. However, there is no coverage for any fines the health inspector imposed.

B. Employee Dishonesty

The following is added to Section I–Property g. Optional Coverages 3. Employee Dishonesty but only if Employee Dishonesty Optional Coverage is provided. It is subject to that paragraph's provisions.

3. Employee Dishonesty

The insurance company pays for loss or damage to a customer's money, securities, and other property due to theft by an identified employee who either acted alone or with others. The property must have been in an insured building at the premises on the declarations and have been property the customer owned, leased, or held for others.

This coverage is for the named insured's benefit and does not benefit any other party, even the customer. As a result, the named insured must submit all such claims for covered losses.

 

Example: Frederick, the maitre’d at Rouchell’s, always took customer coats and checked them in the coatroom. On one occasion, he found a wallet with over $15,000 in cash in a coat. He decided it was a good day to retire, took the money, and left. When the customer discovered his loss, he notified Rouchell’s owner, who submitted it as a claim on the customer’s behalf.

C. Property Definitions Added

Three definitions that apply to the coverage this endorsement provides are added to BP 00 03–Businessowners Coverage Form Section i–Property H. Property Definitions.

1. Food contamination (07 13 changes)

This is an outbreak (the 01 10 edition used the words “incidence of”) that involves food poisoning to at least one customer due to any of the following:

a. Food the named insured purchased or distributed that was tainted

b. Food that was stored, handled, or prepared incorrectly in the course of the named insured’s business operations

c. Food that bacteria or virus has contaminated. An employee, temporary employee, or leased employee must have transmitted the bacteria or virus. (The 01 10 edition used the term “communicable disease.”)

2. Other property means property other than money and securities that is tangible and has intrinsic value. It does not include any property that the coverage form excludes.

3. Perishable stock is property that is susceptible to loss or damage unless it is maintained and preserved under certain controlled temperature or humidity conditions.

D. Liability Coverages Added

This section adds two new coverages to Section II–Liability A. Coverages.

1. Delivery Errors and Omissions Coverage

a. The insurance company pays amounts the insured is legally obligated to pay as damages because items were not delivered or were delivered incorrectly. The items to be delivered must have been held for sale by the named insured, its employees, or concessionaires that trade under its name. The insurance company has both the right and the duty to defend the insured against suits that seek such damages that coverage applies to. That right includes the right to investigate and settle any claim or suit.

A $250 per occurrence deductible applies. The company's duty to defend ends when it uses up this limit paying judgments or settlements.

b. Coverage applies only if failing to deliver at all or error in delivery occurs in the coverage territory during the policy period.

c. Coverage does not apply:

(1) When the nondelivery or misdelivery is intentional

(2) To bodily injury, property damage, or personal and advertising injury

(3) To customer discrimination of any kind. This includes race, color, national origin, religion, gender, marital status, age, sexual orientation or preference, physical or mental condition, or location of the customer’s residence.

d. This coverage is subject to the Supplementary Payments provision that applies to Bodily Injury, Property Damage, and Personal and Advertising Injury Liability coverages.

e. The most this coverage pays per premises is $10,000 in any one policy period. This is subject to a $250 deductible per occurrence deductible. f. Duties in the Event of a Delivery Error or Omission

This condition replaces Section II–Liability E. Liability and Medical Expenses General Conditions 2. Duties in the Event of Occurrence, Offense, Claim, or Suit but only with respect to this Additional Coverage.

(1) The named insured must notify the insurance company as soon as possible of an error or omission that may result in a claim. This includes how, when, and where it took place, and the names and addresses of any affected customers.

(2) The named insured must immediately record the details of the claim or suit and the date it was received, notify the company, and ensure that it receives notice of the claim or suit as soon as practicable.

(3) The named insured and any other insured involved in a claim or suit must immediately send copies of all related legal papers and documents received to the company and authorize it to obtain any relevant records or other information. They must cooperate with the company as it investigates, settles, or defends the claim or suit and help it enforce its rights against any party that may be liable to the insured because of an error or omission that this insurance may cover.

(4) Coverage does not apply to any voluntary payments made, obligations assumed, or expenses that any insured incurs without the insurance company's consent.

 

Example: Middleheart Office Park has a celebration luncheon that starts at noon and ends at 1:00 p.m. Michel’s Fine Food was supposed to deliver the food at precisely 11:45 a.m. but the delivery driver misread the address and went east instead of west. When he finally found the site of the luncheon at 2:00 p.m., the guests had all left. Middleheart Office Park must redo the luncheon and demands that Michel's reimburse it for those expenses. Coverage applies for this loss up to $10,000 but only after the $250 deductible is paid.

 

2. Merchandise Withdrawal Expenses Coverage

a. This coverage reimburses the named insured for expenses it incurs when it must withdraw merchandise for reasons that this insurance covers.

b. Coverage applies only if the withdrawal takes place during the policy period and in the coverage territory. The decision to withdraw the items can be either voluntary or because of an order by a governmental authority.

c. A merchandise withdrawal begins at the earliest of the following times:

(1) When the named insured first informs the general public, its vendors, and employees of the decision to make or participate in a merchandise withdrawal. Discussions with employees in order to make the withdrawal decision are not considered employee notification.

(2) When the named insured receives a written or verbal government order to withdraw merchandise

d. All expenses the named insured incurs to withdraw products that have the same or similar defects are treated as having resulted from the same merchandise withdrawal.

e. A $250 deductible applies. Loss or damage above that amount is paid up to this coverage's limit of insurance.

f. This coverage does not apply to any merchandise withdrawal expense that arises from:

(1) Any merchandise withdrawal that began because of any of the following:

·         The named insured's product failed to achieve its intended purpose. This includes breach of any written or implied warranty but does not apply if the failure caused or is expected to cause bodily injury.

·         Infringing on copyright, patent, trademark, trade secret, or trade dress

·         The named insured's products that deteriorate, decompose, or chemically transform. This exclusion does not apply if design, processing, or manufacturing errors, transportation, or tampering with merchandise caused the deterioration, decomposition, or chemical transformation.

·         The named insured's product's shelf life expires

(2) Defects the named insured or its executive officers knew of in one of its products before this endorsement was issued or before the product left the named insured's control or possession

(3) Recall of any products that are excluded from bodily injury or property damage coverage because of an endorsement added to the coverage form.

(4) Recall where an authorized governmental unit had banned the named insured's product or one of its components from the market before the policy period begins. This exclusion also applies to products or components the named insured sold or distributed after such bans were implemented.

(5) Defending claims or suits against the named insured for liability that arises out of withdrawing merchandise

(6) Costs incurred to redesign the named insured's product or to regain goodwill, market share, revenue, or profit

g. The most the insurance company reimburses the named insured during the policy period for the total of all merchandise withdrawal expenses it incurs is $25,000.

h. Duties in the Event of a Defect or a Merchandise Withdrawal

This condition replaces Section II–Liability E. Liability and Medical Expenses General Conditions 2. Duties in the Event of Occurrence, Offense, Claim, or Suit.

(1) The named insured must make sure the   insurance company is notified as soon as possible of any actual, suspected, or threatened defect in its product, or of any governmental investigation with the potential of becoming a  merchandise withdrawal. The notice should explain the type of product defect, how, when, and where that defect was discovered. The names and addresses of persons who had been injured and witnesses to the injury should be included along with the nature, location, and circumstances of injury or damage resulting because the named insured product is used or consumed.

(2) The named insured must immediately record the details of a merchandise withdrawal and the date on which it was initiated. At that point the insurance company must be given written notice of the withdrawals as soon as practicable.

(3) The named insured must do everything it can to minimize expenses associated with a merchandise withdrawal. Any profits it receives to do so are deducted from the amount it is reimbursed for merchandise withdrawal expenses.

(4) The named insured and any other involved insured must immediately send the insurance company copies of all pertinent correspondence it has received that  relate to the merchandise withdrawal. The named insured must authorize the insurance company to obtain relevant records or other information and cooperate with as the insurance company investigates the merchandise withdrawal.

 

Example: A Riley’s Restaurant customer was taken to the hospital after eating a salad dressed in Riley’s Salad Dressing. Riley’s owner decides to check a bottle in storage and discovers a terrible mistake in the recipe. He recalls all bottles. His expenses to do so up to $25,000 are paid after the $250 deductible is applied.

E. Definitions Added

Five definitions that apply to this endorsement's coverage are added to Section II–Liability F. Liability and Medical Expenses Definitions.

1. Defect

This is not just a defect. It is also a deficiency or inadequacy. However, the term goes beyond just these attributes because it must create a dangerous condition.

2. Merchandise tampering

This is an intentional act of altering the named insured's product in an attempt to cause bodily injury. In cases of known, suspected, or threatened merchandise tampering, merchandise withdrawal is limited to the batches of product known or suspected to be involved.

3. Merchandise withdrawal

This is any recall or withdrawal of the named insured's products with the following features:

4. Merchandise withdrawal expenses

These are the reasonable and necessary additional expenses paid that relate directly to a merchandise withdrawal. They include costs of:

5. Profit

This is the increase in revenue from business operations after deducting operating expenses.

F. Products-completed operations hazard

This term in Section II–Liability F. Liability and Medical Expenses Definitions is redefined. Bodily injury or property damage that arises from the named insured's products in conjunction with restaurant operations it conducts, or that others conduct on its behalf, includes all bodily injury or property damage that arises from the named insured's products that occurs after it no longer possesses those products.

Note: This is the same wording used in CG 24 07–Products/Completed Operations Hazard Redefined.